At the turn of the 20th century Norway, a large cold country at the top of Europe, was renowned for little more than its bleak winters, a gloomy outlook on life and its widespread poverty.
Abu Dhabi Model Economies The National's exclusive series on the 2030 vision
This is the final installment of the Abu Dhabi model economies series. Read the rest here.
Oil and discretion Oslo and Abu Dhabi have more in common than at first glance. Read article
What to do with $550bn? Trond Grande talks investment strategy for Norway's $550bn sovereign wealth fund. Read article
Gigantic exception to the no outward display of riches rule As resplendent as Oslo's opera house is, it servers a practical purpose: the redevelopment of Norway's waterfront. Read article
[ Back to model economies series ]
Knut Hamsun, its most famous writer who won the Nobel Prize for Literature in 1920, called one of his books Hunger, the title of which neatly summarised the precarious position that many of the inhabitants found themselves in. Sweden was the dominant force in the region, providing most of the growth and jobs.
Despite the economic uncertainty Norway won independence from Sweden and formed its own government in 1905, appointed a Danish king, but it remained hard going. The inhabitants lived off fishing, shipping and manufacturing.
That all changed in the 1960s when oil was found in the North Sea.
Norway managed to cut a good deal with its neighbours, particularly Britain and Denmark, as to how to divide the territory that resulted in most of the oil appearing in Norwegian waters.
Governments first reinvested the money, then set up a pension fund to invest the windfall for future generations. It is now the largest producer of oil and gas per capita outside the Middle East. The fund now represents about US$100,000 (Dh367,275) for every man, woman and child in the country.
"Everybody could take a year off but then they'd have to go back to work," says Trond Grande, the deputy chief executive of Norges Bank Investment Management. "It's a lot of money but has to be put in perspective."
The country's economic targets can be described in quantities of 4 per cent: that is the amount in real terms that the fund is hoping to return every year, but also the amount that governments can tap from the fund to balance budgets.
With the exception of just one party everybody in Norway agrees that the money should be saved, not spent. The right-wing Progress Partythinks the money should be used to upgrade the infrastructure and to build hospitals and schools.
"It's a challenge to hold back on spending, especially in the health sector because the needs are always there and people say we are so rich and there are many old and sick people," says John Rogne, the chief economist at Innovation Norway. "It's the rich man's burden."
One of the ways Norway seeks to deal with this burden is to go it alone, spurning invitations from all and sundry.
It was Groucho Marx who said that he would never join a club that would accept him as a member. Norwegian governments seem to have taken this aphorism to heart, turning down membership of the euro zone, Nato, and even Opec, which has helped to contribute to the source of its wealth. "This is a windfall," says Mr Rogne. "It would be a risk to use this money, the economy would lose all credibility."
However, more of the excess cash was spent during the global financial downturn, and now the government is trying to get back to the 4 per cent level, although that is proving challenging. Inflation is rising, up to 2.5 per cent a year, about 0.5 per cent more than the rest of Europe. Immigration from other parts of the continent, particularly Poland, has helped to keep down wages. House prices are high, but even so the Bank of Norway raised interest by 0.25 per cent in May.
"There was a big boom in 2007," says Mr Rogne, "but house prices are down and car sales are falling."
Oslo used to have a reputation as being ruinously expensive, but according to the consultancy Mercer it has dropped four places in its list of the most expensive cities of the world, down to 15th. This ranks Oslo below Moscow, Geneva and Zurich, but above London.
In general, partly because of its large welfare state but also because a large percentage of the population work for the government, Norway has been little affected by the downturn and the credit crunch, although some local municipalities had speculated with future hydropower earnings and invested them in sub-prime loans in an effort to try to make more money - and lost most of their investments.
The government used some of its windfall to ease the burden from the downturn and keep the economy ticking along, but managed to avoid high inflation.
Norway is very big on human rights, universal sufferage and encouraging women in the workplace, as you would expect from a country that helps to pick the Nobel Peace Prize winner. It is the size of Germany but with a population of only 5 million. Roads are expensive to build and maintain, partly because of the harsh winters.
More than 30 per cent of the population work in the public sector, the highest figure in the Organisation for Economic Co-operation and Development (OECD).
Civil servants receive a comfortable wage, somewhere between 350,000 krone (Dh240,000) to 700,000 krone a year and the retirement age is set at 67. Unemployment is low, less than 3.5 per cent and stable.
As well as oil and refining - Norway invested much of its early windfall into developing the upstream business - the economy is powered by chemicals, aluminium smelting that is helped by cheap, abundant electricity from the country's hydropower dams, and fish. "Norway's most important resource is fish," says Mr Rogne. "They are real."
It is hard to get rich in Norway because taxes are high and there isn't really a culture of entrepreneurialism, although Innovation Norway is trying to encourage entrepreneurs. It is also helping to set up clusters- industries grouped around a certain field and placed in different parts of the country - to make sure that it is not just Oslo that thrives and develops.
"I think there are entrepreneurs in every culture," says Erik Furu, the deputy head of mission at the Norwegian Embassy in Abu Dhabi. "But in Norway there is a safety net so that even if you fail you have something to fall back on, so that might encourage people."
Kjell Inge Rokke is probably Norway's best-known businessman, the country's equivalent of Britain's Sir Richard Branson or America's Warren Buffett. He started life as a fisherman, "a dyslexic fisherman reportedly told by schoolteachers he'd never amount to anything", according to Forbes magazine. It now ranks him in the top 400 of global billionaires, having amassed a fortune first in the fishing fields of Alaska, before he moved to Seattle in the US in the 1980s, where he gained control of American Seafoods.
He returned to Norway in the 1990s and started buying and restructuring local companies. Even though he is burdened by high taxation, including a 1 per cent wealth tax, he has declared he is happy to pay.
But such entrepreneurship is rare. Many Norwegians are content with their lot, but even for them there could be trouble ahead.
"If I were to be negative, the best thing that could happen is that the fund won't destroy our productivity, but it will happen, we are doing it with our eyes open," says Mr Grande.
"With 4 per cent coming into economy every year, after 10 years approximately 20 per cent of government spending will be financed by the fund. That could be dangerous."
So why not just give everybody $100,000 and see what happens? "That has been suggested," Mr Grande adds wryly.
At least they would have fun trying, but knowing the Norwegians, they would manage to accomplish it in a gloomy manner and feel bad about it for months after.
"It would be fun," says Mr Furu, "but Norwegian politicians are generally responsible and I think there is a consensus that we should save, not spend the money."
